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Where are the Health Care Entrepreneurs? The Failure of Organizational Innovation in Health Care

In: Innovation Policy and the Economy, Volume 11

  • David M. Cutler

Medical care is characterized by enormous inefficiency. Costs are higher and outcomes worse than almost all analyses of the industry suggest should occur. In other industries characterized by inefficiency, efficient firms expand to take over the market, or new firms enter to eliminate inefficiencies. This has not happened in medical care, however. This paper explores the reasons for this failure of innovation. I identify two factors as being particularly important in organizational stagnation: public insurance programs that are oriented to volume of care and not value, and inadequate information about quality of care. Recent reforms have aspects that bear on these problems.

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This chapter was published in:
  • Josh Lerner & Scott Stern, 2011. "Innovation Policy and the Economy, Volume 11," NBER Books, National Bureau of Economic Research, Inc, number lern10-1, June.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12044.
    Handle: RePEc:nbr:nberch:12044
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Katherine Ho, 2009. "Barriers to Entry of a Vertically Integrated Health Insurer: An Analysis of Welfare and Entry Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 487-545, 06.
    2. Brad M. Barber & Terrance Odean & Lu Zheng, 2005. "Out of Sight, Out of Mind: The Effects of Expenses on Mutual Fund Flows," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2095-2120, November.
    3. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2011. "Unhealthy Insurance Markets: Search Frictions and the Cost and Quality of Health Insurance," American Economic Review, American Economic Association, vol. 101(5), pages 1842-71, August.
    4. repec:mpr:mprres:6492 is not listed on IDEAS
    5. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
    6. David M. Cutler & Robert S. Ilckman & Mary Beth Landrum, 2004. "The Role of Information in Medical Markets: An Analysis of Publicly Reported Outcomes in Cardiac Surgery," American Economic Review, American Economic Association, vol. 94(2), pages 342-346, May.
    7. Neeraj Sood & Arkadipta Ghosh & José J. Escarce, 2009. "EmployerSponsored Insurance Health Care Cost Growth and the Economic Performance of US Industries," Mathematica Policy Research Reports 88ac266a27d2497c84f0a2db7, Mathematica Policy Research.
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